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Ian earned his BA in Economics and Mathematical Methods in the Social Sciences at Northwestern, and his AM and PhD in Economics from Harvard. His research covers both theoretical and empirical consumption-based asset pricing, focusing in particular on the relationship between asset prices and the real economy. Ian previously worked at Duke University and the Federal Reserve Bank of San Francisco.

The average investor in the variance swap market is indifferent to news about future
variance at horizons ranging from 1 month to 14 years. It is only purely transitory
and unexpected realized variance that is priced. These results present a challenge
to most structural models of the variance risk premium, such as the intertemporal
CAPM, recent models with Epstein-Zin preferences and long-run risks, and models
where institutional investors have value-at-risk constraints. The results also have strong implications for macro models where volatility affects investment decisions, suggesting that investors are not willing to pay to hedge shocks in expected economic uncertainty.

We quantify investors' preferences over the dynamics of shocks by deriving frequency-specific risk prices that capture the price of risk of consumption fluctuations at each frequency. The frequency-specific risk prices are derived analytically for leading models. The decomposition helps measure the importance of economic fluctuations at different frequencies. We precisely quantify the meaning of "long-run" in the context of Epstein--Zin preferences -- centuries -- and measure the exact relevance of business-cycle fluctuations. Last, we estimate frequency-specific risk prices and show that cycles longer than the business cycle -- long-run risks -- are significantly priced in the equity market.

We study an investor who is unsure of the dynamics of the economy. Not only are parameters unknown, but the investor does not even know what order model to estimate. She estimates her consumption process nonparametrically -- allowing potentially infinite-order dynamics -- and prices assets using a pessimistic model that minimizes lifetime utility subject to a constraint on statistical plausibility. The equilibrium is exactly solvable and we show that the pricing model always includes long-run risks. With risk aversion of 4.7, the model matches major facts about asset prices, consumption, and dividends. The paper provides a novel link between ambiguity aversion and non-parametric estimation.

Dew-Becker, Ian. Forthcoming. How risky is consumption in the long-run? Benchmark estimates from a robust estimator. Review of Financial Studies.

The long-run standard deviation of consumption growth is a key moment in determining risk premia when agents have Epstein--Zin preferences. This paper studies a new estimator of the long-run standard deviation shown to provide a superior bias/variance trade-off and better confidence interval coverage than previous methods. In the postwar period the long-run standard deviation of consumption growth is estimated to be 2.5 percent per year with an upper bound to the 95-percent confidence interval of 4.9 percent. The analogous values in the longest available sample are 4 and 5.6 percent. These values can be taken as benchmarks for future calibrations.

This paper studies the effects of restrictions on high-frequency investment for price informativeness and the profits and utility of low-frequency investors. We examine a variant of the standard noisy rational expectations framework in which both the exposures of investors and their information about future fundamentals endogenously vary across future dates. In this environment, precluding investors from holding portfolios with exposures to fundamentals that change at high frequency has zero effect on the information embedded in prices about lower-frequency variation in fundamentals. Furthermore, while the entry of high-frequency investors reduces the profits of low-frequency investors, restricting high-frequency investment in response only makes the problem worse.

This paper studies the optimal information and consumption choice of an agent with uncertainty about the process that income follows. The model allows the agent to choose what aspects of income dynamics to learn about. The utility-optimal information structure provides maximal precision about income dynamics at the very lowest frequencies, which have the greatest effect on utility. Deviations of consumption from the full-information rational expectations benchmark are then predicted to be largest at high frequencies, so the model can explain why consumption is sometimes observed to track predictable changes in income and why asset returns appear to be predictable at short horizons. The analysis demonstrates a deep link between model complexity and information acquisition: the places where the agent gathers the most information are also the places where the agent's model is the most complex, whereas aspects of the income process that are less important for utility are endogenously modeled in a simpler manner. Even though the agent makes large statistical errors, their effects on utility are quantitatively trivial in an example calibration.

Dew-Becker, Ian. 2016. The pricing of economic risks under time-separable and recursive preferences.

Consider an agent with time-separable constant absolute risk aversion preferences who faces an exogenous income process and has access to a riskless saving technology with a constant interest rate. That agent's indirect utility over income streams is a form of Epstein--Zin (1989) preferences. Epstein--Zin preferences have been widely studied in the recent literature because of their implications for the pricing of shocks to expectations of future economic conditions. Identical predictions are naturally and generally obtained also under purely time-separable preferences. The paper's results also point toward a very broad class of analytically solvable models.

Dew-Becker, Ian. 2014. A Model of Time-Varying Risk Premia with Habits and Production.

Conference Proceedings

Dew-Becker, Ian. 2009. "How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation in America." vol. 55.

Teaching Interests

Investment

Full-Time / Evening & Weekend MBA

Investments (FINC-460-0)

This course aims at developing key concepts in investment theory from the perspective of a portfolio manager rather than an individual investor. The goal of this class is to provide students with a structure for thinking about investment theory and show how to address practical investment problems in a systematic manner. Instead of focusing on pure theoretical models, the emphasis is given on the empirical facts observed in asset prices in worldwide capital markets, understanding whether they manifest new dimension of systematic risk, and how to design smart portfolios to take advantage of multiple sources of systematic risk.

Students interested in this course are expected to have sound knowledge of Statistics and Regression Analysis. This is a quantitative course in which we discuss many cases, but case studies will require ability to do statistical analysis similar to what might be applied in practice. The course develops an applied analytical framework of financial investments.

This class provides students with a structure for thinking about financial markets and the pricing of financial securities. The financial securities we study and price include stocks, bonds, futures, and options.

The class teaches how to address investment problems in a systematic manner using case studies. They are used to examine issues in the selection and implementation of investment strategies. In the process, the class examines current academic work about financial markets and their applications to investing.